High interest rates in the US and electoral ‘mess’ drive investors away from Brazil, says economist

The expectation that interest rates will rise more in the US than in Brazil in the coming months, added to Brazilian fiscal and electoral uncertainties, should keep foreign investors away for longer. The statement was made by Roberto Dumas, chief strategist at Voiter bank and professor at Insper.

He affirms that he does not see the prospect of a strong recovery for the Ibovespa and the real this year, after the outflow of foreign capital that helped bring both indicators down in the second quarter.

Foreigners have already achieved gains of 40% in dollars in the Brazilian market in the first quarter, says Dumas, and there is no reason to risk new investments at this time.

For him, there is still room for further devaluation of Brazilian assets, if interest rates rise even further abroad and domestic uncertainties increase.

“We can wait a little longer. Am I going to put money in an emerging market, in Brazil? No, we’re going to the US. The interest rate there is rising more than here. There’s even more interest there to be happy”, says the economist. .

The Fed (Federal Reserve, the American central bank) announced this Wednesday (27) a new increase of 0.75 percentage point in its interest rate, raising the maximum target to 2.5% per year. For Dumas, interest rates can go up to 4% or 4.25%.

The adverse external scenario adds to the internal problems. Dumas says he is not against the government’s measures to help the poorest population, but says that the decision not to cut other spending shows that there is no commitment to fiscal rectitude.

He is also concerned about the words and attitudes of the two favorites in the presidential race on the fiscal issue and says that the government can give with one hand through fiscal policy, but high interest rates and inflation will take away from the other.

“One says that the spending ceiling is going to burst. The other is already bursting in fact. At election time you want to spend. It’s normal. It’s not just Bolsonaro. It happened to Fernando Henrique, Dilma. want. [mercado] price,” he says.

Dumas also says that an expansionary fiscal policy leads the Central Bank to step on the brakes harder and can bring interest rates to a level close to 14% per year.

“You push interest rates to control demand, then someone comes along and throws more money into the economy, then you have to take it with the other hand.

While dismissing the risk of an institutional crisis similar to what happened in the US with the Capitol invasion, Dumas sees a more heated election that sends a negative message to investors.

“The investor doesn’t like this risk. Breakup, I don’t think [que vai ter]. Heat in the streets, yes. This election is more heated,” he says.

“I was once asked: don’t you think everything is wrong? I don’t want to get into the discussion. I just don’t want a mess in the streets.